The Czech The Czech and Slovak and Slovak experience experience with the World Bank's program of with the World Bank's program of CPFLCPFL

Benefits and added value for the Benefits and added value for the national regulatorsnational regulators

TomTomasas Prouza Prouzaformer Deputy Minister of former Deputy Minister of Finance, Czech Finance, Czech RepublicRepublic

SeptemberSeptember 26 26, , 20112011

Today's agendaToday's agenda

why is CPFL an issue for a middle-income why is CPFL an issue for a middle-income

EU country? EU country?

why seek assistence from the World Bank? why seek assistence from the World Bank?

WB impact in the Czech Republic WB impact in the Czech Republic

WB impact in Slovakia WB impact in Slovakia

key lessons key lessons

About meAbout me

originally a finance journalist, originally a finance journalist,

established the first personal finance established the first personal finance

website in 2000 website in 2000 deputy minister of finance 2004-2007 deputy minister of finance 2004-2007 2007-2011 member of the board of an 2007-2011 member of the board of an

IFA company IFA company 2009-2011 chairman of the Czech IFA 2009-2011 chairman of the Czech IFA

Association Association

Setting the sceneSetting the scene

2004: 2004: 15 years after the fall of 15 years after the fall of

communism communism

institutional clean-up in 1990's institutional clean-up in 1990's

financial institutions owned by foreign financial institutions owned by foreign

conglomerates conglomerates

all modern products available all modern products available

limited customer experience limited customer experience

Setting the sceneSetting the scene II II

life life insurance, partly investment & mortgage insurance, partly investment & mortgage intermediation dominated by multi-level intermediation dominated by multi-level agents agents

fragmented fragmented market smarket supervisionupervision

centralized centralized supervisor supervisor since 2006 since 2006 (central (central bank) believes in prudential supervision only bank) believes in prudential supervision only

self-regulation works sporadically self-regulation works sporadically

growing number of complaints from the growing number of complaints from the public (high prices & misselling) public (high prices & misselling)

Political optionsPolitical options

price regulation – easy & popular price regulation – easy & popular focus on real solutions even if they focus on real solutions even if they

take timetake time– transparency (know what you pay) transparency (know what you pay)

– comparability (choose the best easily) comparability (choose the best easily)

– migration (lower switching barriers) migration (lower switching barriers)

– understandingunderstanding & & education (know what education (know what you do and why) you do and why)

– redress (easy-to-use and quick recourse redress (easy-to-use and quick recourse mechanism) mechanism)

Key objectionsKey objections

no need to change (surveys, price no need to change (surveys, price comparisons, foreign experience) comparisons, foreign experience)

let the market work (old tricks, new let the market work (old tricks, new players) players)

only prudential supervision matters only prudential supervision matters

education is enough education is enough

how do you know your ideas will work? how do you know your ideas will work?

Assistance neededAssistance needed

around 2005 no international work on CP (EU around 2005 no international work on CP (EU directives primarily deal with market stability directives primarily deal with market stability and single market, OECD only starts to look at and single market, OECD only starts to look at financial education) financial education)

closest international work WB corporate closest international work WB corporate governance reviews governance reviews

in 2005, the Czech Republic asked for technical in 2005, the Czech Republic asked for technical assistence on CPFL review, followed by Slovakia assistence on CPFL review, followed by Slovakia

first reviews conducted under ECA Vice-first reviews conducted under ECA Vice-President Shigeo Katsu, Daniela Gressani, then President Shigeo Katsu, Daniela Gressani, then the the Country Director for Central Europe and the Country Director for Central Europe and the Baltic StatesBaltic States, by Sue Rutledge and her team , by Sue Rutledge and her team

CZ expectationsCZ expectations

government expectations from the government expectations from the WB: WB:

– stimulate public debate and provide stimulate public debate and provide support support

– provide specific advice on:provide specific advice on: financial education and financial literacy financial education and financial literacy

alternative dispute resolution mechanism alternative dispute resolution mechanism

distribution of financial products (including distribution of financial products (including disclosure and regulation) disclosure and regulation)

CZ impact ICZ impact I

multi-stakeholder communication multi-stakeholder communication platform set up (MinFin, MIT, MinEdu, platform set up (MinFin, MIT, MinEdu, integrated supervisor, industry & integrated supervisor, industry & consumer representatives) consumer representatives)

consumer protection made an integral consumer protection made an integral part of the mandate of the integrated part of the mandate of the integrated supervisor (limited powers and partial supervisor (limited powers and partial coverage remain a problem, becoming coverage remain a problem, becoming more pro-active) more pro-active)

CZ impact IICZ impact II

financial education – official Financial financial education – official Financial Education Stratregy prepared and Education Stratregy prepared and approved by the government, key approved by the government, key priorities:priorities:

– active behavior on the financial market active behavior on the financial market

– prevention of overindebtedness prevention of overindebtedness

– preparation for old age preparation for old age

financial education strategy for high financial education strategy for high schools schools

working group established to coordinate working group established to coordinate

CZ impact IIICZ impact III

dispute resolution mechanism – public dispute resolution mechanism – public consultation based on WB's consultation based on WB's recommendations, powers recommendations, powers consequently extended but financing consequently extended but financing worsened worsened

overhaul of distribution rules prepared overhaul of distribution rules prepared (3 year discussion) (3 year discussion) – if approved, should limit room for misselling if approved, should limit room for misselling

– should have started with disclosure should have started with disclosure

SK expectations SK expectations

support the MinFin as the single support the MinFin as the single financial market regulator financial market regulator

consumer protection in financial consumer protection in financial services one of the priorities of the new services one of the priorities of the new Slovak government (2006) Slovak government (2006)

three areas of interest:three areas of interest:

– dislosure and advertising rules + ADR dislosure and advertising rules + ADR

– financial education financial education

– distribution and financial advicedistribution and financial advice

SK impact ISK impact I

new laws drafted based on WB new laws drafted based on WB recommendations:recommendations:

– Act on intermediation and advisory in the Act on intermediation and advisory in the financial market, setting up new training & financial market, setting up new training & certification system, remuneration and certification system, remuneration and responsibility for distributors - approvedresponsibility for distributors - approved

– Act on financial consumer protection setting Act on financial consumer protection setting up the new Financial Consumer Protection up the new Financial Consumer Protection Office, responsible for complaints resolution, Office, responsible for complaints resolution, market conduct supervision and financial market conduct supervision and financial education (incl. education and certification of education (incl. education and certification of distributors) – cancelled by the 2010 Slovak distributors) – cancelled by the 2010 Slovak government government

SK impact IISK impact II

dispute resulution – the 2007 WB dispute resulution – the 2007 WB Technical Note provided Technical Note provided recommendations to improve the ADR recommendations to improve the ADR system and public access system and public access

voluntary Banking Ombud established voluntary Banking Ombud established government proposed Financial Ombud government proposed Financial Ombud

– cancelled by the 2010 Slovak – cancelled by the 2010 Slovak government government

consumer credit disclosure – publication consumer credit disclosure – publication of average APR, maximum APR set of average APR, maximum APR set

Key lessons IKey lessons I

strong benchmarks needed strong benchmarks needed

cross-sectoral issues become more cross-sectoral issues become more urgent (same rules for similar urgent (same rules for similar products, ADR, etc.) products, ADR, etc.)

keeping up the pressure needed keeping up the pressure needed (impact studies, action plans and (impact studies, action plans and implementation verification, repeated implementation verification, repeated financial literacy studies to monitor financial literacy studies to monitor developments) developments)

Key lessons IIKey lessons II

education of national authorities needed:education of national authorities needed:

– publish case studies and publish case studies and recommendations / best practices recommendations / best practices

– promote discussion of key issues promote discussion of key issues

– leverage the knowledge of the CPFL leverage the knowledge of the CPFL team team

compare CPFL policies across countries, compare CPFL policies across countries, promote examples to support promote examples to support competitioncompetition

Thank you for your Thank you for your attention attention

Tomas Prouza, MBA Tomas Prouza, MBA

tomas@prouza.cz